‘Yield is king’: real estate investors ditch New York, LA for second-tier US cities
- In Chicago, one can buy a two-bedroom flat for as low as US$382,167, while in New York, an investor needs US$1.27 million
- Investors from Hong Kong and mainland China are looking to US cities such as Seattle, Austin and Nashville
Finding New York and Los Angeles far too expensive as investment options? Then it’s probably time to head for the less glamorous cities of Salt Lake City, Nashville, and Austin.
Real estate experts believe that secondary cities in the United States are becoming more popular with investors looking for better returns, even though they could face higher risks and find it more difficult to re-sell in an economic downturn due to lower liquidity.
“The cap rate difference in Charlotte, North Carolina and New York was something like 120 to 150 basis points. That's significant, and that's where the bargain aspect of that comes in,” said Dan Flanigan, managing partner of the New York office of US law firm Polsinelli. “You have a much better shot at getting between 9 and 12 per cent in these secondary cities.”
Flanigan, who said his mid-sized law firm handled real estate deals involving investors from mainland China and Hong Kong in recent years, was in Hong Kong to meet with clients and attend a conference.
Data from New York-based Real Capital Analytics showed that investments from Hongkongers and mainland Chinese in cities such as Salt Lake, Austin, Nashville, Dallas, and Seattle increased annually from between nearly a third and as much as tenfold in 2018.
These investments included income-producing assets, defined as office, retail, industrial, hotel apartment and senior housing.